iPhone Bucks Gloomy Handset Sales Forecasts

As shares in the major handset manufacturers struggled to recover from Monday's sharp declines, increasingly it looks like a long summer for the cell phone and smartphone industry. Amid growing reports that the economic downturn will affect sales of mobile devices not only in the nearly saturated markets of the West but in the developing world as well, research firm Gartner released a report lowering its forecast for mobile industry growth this year.

Reducing its prediction from up to 15% annual growth in handset sales down to 10% to 11%, Gartner said that the global economic slowdown has started to limit demand for new cell phones and smartphones, including in developing markets, where robust results have bolstered the bottom lines of big manufacturers like Nokia, Samsung, and Motorola the last couple of years.

"In the last month, the economic environment started to negatively impact emerging markets as well as mature," Carolina Milanesi, head of mobile device research at Gartner, told Reuters.

Another indicator: leading phone-charger maker Salcomp warned that its profits would decline this year due to weaker sales volumes the rest of 2008.

The lone bright spot, of course, is Apple, which released the new 3G version of its iPhone on Friday and sold 1 million units in the first three days. Many wireless analysts now predict that Apple will sell 10 million of the new devices by the end of the year.

Ten percent annual growth is still a respectable figure, but it now appears that the runaway success of the iPhone will inevitably suck sales away from other established handset makers. Nokia, the world's No. 1 seller of mobile devices, lost more than 4% of its share price on Monday after the booming iPhone sales over the weekend were reported. Other cell phone makers including Sony Ericsson, Motorola, and Samsung, were also hit hard by Wall Street.

Makers of handset components also suffered: RF Micro Devices, which sells switches, amplifiers, and other equipment to leading handset manufacturers, was off 3.5% on Monday.

Showing annual growth of 16% in 2007, the market for cell phones and smartphones has seemed impervious to business cycles as vast numbers of new customers have bought handsets in the booming markets of China, India, and other Asian countries. That era may be ending: Citigroup analyst Jim Suva said earlier that, in a worst-case recession scenario, unit sales could actually decline by 5%, with vendors at the lower end of the market and those with big exposure to North America, such as Treo-maker Palm, in particular danger. Research firm IDC earlier predicted that growth in mobile handset sales will slip into the single digits in 2008, recession or no.

Less vulnerable is BlackBerry-maker Research in Motion, whose business-focused customer base has so far not shown erosion due to the iPhone phenomenon. The company previewed its 3G-enabled BlackBerry Bold 9000 series device, which will be available through international carriers this summer, in May. Suva predicted that the Bold could add between 200,000 and 400,000 units to RIM's quarterly shipments.